KLDiscovery Inc. Announces Second Quarter 2024 Financial Results

Rhea-AI Summary

KLDiscovery announced its second quarter 2024 financial results. Revenue decreased to $79 million from $90 million in Q2 2023. The net loss widened to $25.3 million, compared to $4.7 million in the same period last year. EBITDA was $(0.5) million, down from $18.5 million, while Adjusted EBITDA fell to $13.3 million from $20.1 million.

However, revenue from its Nebula platform showed significant growth, increasing by 29% quarter-over-quarter and 51% year-over-year. The company also signed a transaction support agreement to reduce long-term debt and strengthen its financial position.

CEO Christopher Weiler highlighted consistent revenue in the first two quarters and a notable milestone with capital partners, boosting the company's balance sheet. KLDiscovery plans to introduce further customization for Nebula in regulatory and medical records later this year.

Positive

• Nebula revenue up 29% QoQ and 51% YoY.
• Transaction support agreement signed to reduce long-term debt.
• Consistent revenue in the first two quarters of 2024.
• Increasing data hosted in Nebula and active users.

Negative

• Revenue decreased to $79 million from $90 million in Q2 2023.
• Net loss widened to $25.3 million from $4.7 million in Q2 2023.
• EBITDA was $(0.5) million, down from $18.5 million.
• Adjusted EBITDA fell to $13.3 million from $20.1 million.
• Increased operating expenses, particularly in general and administrative costs.

Nebula adoption accelerating with Nebula revenue up 29% quarter-over-quarter and 51% year-over- year

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)-- KLDiscovery Inc. (“KLDiscovery” or the “Company”), a leading global provider of electronic discovery, information governance and data recovery technology solutions, announced today that revenue for the second quarter ended June 30, 2024, was $79.0 million compared to $90.0 million in the second quarter of 2023. Net loss for the second quarter of 2024 was $(25.3) million compared to $(4.7) million in the second quarter of 2023.

EBITDA¹ for the second quarter of 2024 was $(0.5) million compared to $18.5 million in the second quarter of 2023. Adjusted EBITDA¹ (which excludes stock-based compensation, acquisition financing and transaction costs and other items as described below) for the second quarter of 2024 was $13.3 million compared to $20.1 million in the second quarter of 2023.

As announced on July 8, 2024, KLDiscovery has signed a transaction support agreement (the “TSA”) with its convertible debenture holders, term loan lenders, revolving credit facility lender, and largest shareholder and an exchange agreement with its convertible debenture holders. This represents an important step toward closing a transaction that will significantly reduce the Company’s long-term debt and strengthen its financial position, enabling KLDiscovery to focus on its growth model and investment in market-leading client solutions.

“Our financial results have been solid through this period with consistent revenue in the first two quarters of 2024,” said Christopher Weiler, CEO of KLDiscovery Inc. “Nebula continues to shine and is becoming an even more important component of our overall revenue with revenue growth of 51% year-over-year and 29% quarter-over-quarter. We continue to see increases in data hosted in Nebula and active users using Nebula compared to the same quarter in the prior year.”

Weiler continued, “Last month, we reached a significant milestone with our capital partners that strengthens our balance sheet and will allow us to build upon our long history of excellent client service, which is the industry standard. In our never-ending quest for delivering innovation, later this year we will be adding further customization for Nebula in the regulatory and medical records area.”

2023-2024 Quarterly Results
(in millions)
		2023 (unaudited)																2024 (unaudited)
		Q1				Q2				Q3				Q4				Q1				Q2
Revenue			90.7				90.0				79.3				85.8				80.2				79.0
Net loss			(4.5	)			(4.7	)			(11.4	)			(14.3	)			(16.9	)			(25.3	)
Net loss per share (basic and diluted)		$	(0.11	)		$	(0.11	)		$	(0.26	)		$	(0.33	)		$	(0.39	)		$	(0.58	)
Weighted average outstanding shares (basic and diluted)			42.9				43.0				43.1				43.1				43.1				43.3
EBITDA (Non-GAAP)			18.2				18.5				13.9				12.0				7.4				(0.5	)
Adjusted EBITDA (Non-GAAP)			20.9				20.1				15.9				17.2				10.6				13.3

¹ Non-GAAP measure. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” below for additional information and a reconciliation to the most directly comparable GAAP measure.

Earnings Conference Call

Management will conduct a conference call at 8:30 AM ET on August 8, 2024, to discuss financial results for the second quarter of 2024. The audio portion of the conference call will be broadcast live over the Internet in the Investors section of KLDiscovery's website https://investors.kldiscovery.com.

To join the conference call by telephone, please register via the following link: KLDiscovery Q2 2024 Financial Results Conference Call

Once registered, you will receive an email with Direct Entry and Registrant ID along with dial-in details. An audio recording of the conference call will be available for replay shortly after the call's completion and will remain available for two weeks following the call. To access the recorded conference call, please dial (800) 770-2030 (from the U.S. and Canada) or (647) 362-9199 (from all other countries) using access code 69657 or visit the Investors section of the KLD website.

KLDiscovery Inc.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(in thousands, except share and per share amounts)
		Three Months Ended June 30,								Six Months Ended
		2024				2023				2024				2023
Revenues		$	78,969			$	90,007			$	159,141			$	180,666
Cost of revenues			40,315				44,995				82,383				88,582
Gross profit			38,654				45,012				76,758				92,084
Operating expenses
General and administrative			27,487				14,599				45,650				31,900
Research and development			3,418				3,257				6,774				6,457
Sales and marketing			10,354				10,856				21,622				21,247
Depreciation and amortization			4,412				4,926				8,788				9,739
Total operating expenses			45,671				33,638				82,834				69,343
(Loss) Income from operations			(7,017	)			11,374				(6,076	)			22,741
Other expenses
Change in fair value of Private Warrants			(19	)			(317	)			13				(508	)
Interest expense			17,750				16,192				35,258				31,962
Loss before income taxes			(24,740	)			(4,498	)			(41,323	)			(8,711	)
Income tax provision			560				182				856				477
Net loss		$	(25,300	)		$	(4,680	)		$	(42,179	)		$	(9,188	)
Other comprehensive (loss) income, net of tax
Foreign currency translation			(941	)			(177	)			(2,853	)			648
Total other comprehensive (loss) income, net of tax			(941	)			(177	)			(2,853	)			648
Comprehensive loss		$	(26,241	)		$	(4,857	)		$	(45,032	)		$	(8,540	)
Net loss per share - basic and diluted		$	(0.58	)		$	(0.11	)		$	(0.98	)		$	(0.21	)
Weighted average shares outstanding - basic and diluted			43,266,122				42,959,827				43,176,195				42,931,711

KLDiscovery Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
		June 30, 2024				December 31, 2023
		(unaudited)
Current assets
Cash and cash equivalents		$	33,804			$	15,351
Accounts receivable, net of allowance
for credit losses of $3,295 and $3,642, respectively			92,718				101,257
Prepaid expenses			19,346				15,787
Other current assets			1,478				1,585
Total current assets			147,346				133,980
Property and equipment
Computer software and hardware			62,571				61,731
Leasehold improvements			26,580				26,313
Furniture, fixtures and other equipment			2,151				2,262
Accumulated depreciation			(77,486	)			(73,045	)
Property and equipment, net			13,816				17,261
Operating lease right of use assets, net			8,398				10,078
Intangible assets, net			38,092				39,729
Goodwill			393,916				396,283
Other assets			7,213				8,262
Total assets		$	608,781			$	605,593
Current liabilities
Current portion of long-term debt, net		$	592,420			$	546,845
Accounts payable and accrued expense			28,898				25,957
Operating lease liabilities			4,708				5,906
Current portion of contingent consideration			650				650
Deferred revenue			3,905				3,181
Total current liabilities			630,581				582,539
Deferred tax liabilities			9,505				8,941
Long term operating lease liabilities			6,158				7,870
Other liabilities			1,918				2,176
Total liabilities			648,162				601,526
Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value, 200,000,000 shares authorized, 43,516,392 issued and 43,086,267 outstanding as of June 30, 2024 and December 31, 2023, respectively			4				4
Preferred Stock
$0.0001 par value, 1,000,000 shares authorized, zero issued and outstanding as of June 30, 2024 and December 31, 2023, respectively			—				—
Additional paid-in capital			397,044				395,461
Accumulated deficit			(436,133	)			(393,954	)
Accumulated other comprehensive income			(296	)			2,556
Total stockholders' equity			(39,381	)			4,067
Total liabilities and stockholders' equity		$	608,781			$	605,593

Set forth below is a reconciliation of EBITDA and Adjusted EBITDA, which are non-GAAP measures, to net (loss), the most directly comparable GAAP measure. See “Non-GAAP Financial Measures” below for additional information on these measures, including why we believe they are useful to investors and certain limitations thereof.

KLDiscovery Inc.
Reconciliation of Non-GAAP Financial Matters
(In thousands)
(Unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Net loss		$	(25,300	)		$	(4,680	)		$	(42,179	)		$	(9,188	)
Interest expense			17,750				16,192				35,258				31,962
Income tax provision			560				182				856				477
Depreciation and amortization expense			6,525				6,766				12,979				13,375
EBITDA		$	(465	)		$	18,460			$	6,914			$	36,626
Acquisition, financing and transaction costs			13,000				353				15,480				2,115
Stock compensation and other			767				877				1,514				1,710
Change in fair value of Private Warrants			(19	)			(317	)			13				(508	)
Restructuring costs			13				556				(85	)			719
Systems establishment costs			—				158				—				338
Adjusted EBITDA		$	13,296			$	20,087			$	23,836			$	41,000

Note:

• Acquisition, financing and transaction costs generally represent earn-out payments, rating agency fees and letter of credit and revolving facility fees, as well as professional service fees and direct expenses related to acquisitions and public offerings and cost associated with reviewing potential alternative sources for cash or financing related to our debt maturities.
• Stock compensation and other primarily represents portions of compensation paid to our employees and executives through stock-based instruments.
• Change in fair value of Private Warrants relates to changes in the fair market value of the Private Warrants issued in conjunction with the December 2019 business combination.
• Restructuring costs generally represent non-ordinary course costs incurred in connection with a change in a contract or a change in the makeup of our personnel often related to an acquisition, such as severance payments, recruiting fees and retention charges.
• Systems establishment costs relate to non-ordinary course expenses incurred to develop our IT infrastructure, including system automation and enterprise resource planning system implementation.

KLDiscovery Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
		Six Months Ended June 30, 2024				Six Months Ended June 30, 2023
Operating activities
Net loss		$	(42,179	)		$	(9,188	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			12,979				13,374
Paid in kind interest			12,297				10,416
Stock-based compensation			1,515				1,709
Provision for losses on accounts receivable			1,887				1,571
Deferred income taxes			568				98
Change in fair value of Private Warrants			13				(508	)
Changes in operating assets and liabilities:
Accounts receivable			6,403				(13,374	)
Prepaid expenses and other assets			(1,985	)			(6,189	)
Accounts payable and accrued expenses			(3,204	)			593
Deferred revenue			747				(1,528	)
Net cash used in operating activities			(10,959	)			(3,026	)
Investing activities
Purchases of property and equipment			(6,651	)			(6,106	)
Net cash used in investing activities			(6,651	)			(6,106	)
Financing activities
Revolving credit facility draws			38,000				—
Payments for capital lease obligations			—				(1,272	)
Payments on long-term debt			(1,500	)			(1,500	)
Net cash provided by (used in) financing activities			36,500				(2,772	)
Effect of foreign exchange rates			(437	)			170
Net increase (decrease) in cash			18,453				(11,734	)
Cash at beginning of period			15,351				32,629
Cash at end of period		$	33,804			$	20,895
Supplemental disclosure:
Cash paid for interest		$	23,285			$	21,912
Net income taxes paid		$	866			$	536
Significant noncash investing and financing activities
Purchases of property and equipment in accounts payable and accrued expenses on the condensed consolidated balance sheets		$	158			$	212

About KLDiscovery

KLDiscovery provides technology-enabled services and software to help law firms, corporations, and government agencies solve complex data challenges. With offices in 26 locations across 17 countries, KLDiscovery is a global leader in delivering best-in-class data management, information governance, and eDiscovery solutions to support the litigation, regulatory compliance, and internal investigation needs of clients. Serving clients for over 30 years, KLDiscovery offers data collection and forensic investigation, early case assessment, data processing, application software and data hosting for web-based document reviews, and managed document review services. In addition, through its global Ontrack data management business, KLDiscovery delivers world-class data recovery, disaster recovery, email extraction and restoration, data destruction, and tape management. KLDiscovery has been recognized as one of the fastest growing companies in North America by both Inc. Magazine (Inc. 5000) and Deloitte (Deloitte’s Technology Fast 500), and CEO Chris Weiler was a 2014 Ernst & Young Entrepreneur of the Year™. Additionally, KLDiscovery is a Relativity Certified Partner and maintains ISO/IEC 27001 Certified data centers around the world. Visit www.kldiscovery.com to learn more.

This press release includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the United States Private Securities Litigation Reform Act of 1995. All statements contained in this press release other than statements of historical facts, including, without limitation, statements regarding the benefits of KLDiscovery’s products and Client Portal for its clients and the benefits of the Company’s agreement in principle with its principal debenture holders and principal term loan lender are forward-looking statements. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements.

These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside KLDiscovery’s management’s control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Important factors, among others, that may affect actual results or outcomes include: consequences of KLDiscovery’s substantial levels of indebtedness, including the pending maturity and potential acceleration thereof in June 2024, and its ability to repay its debt obligations as they become due or to secure alternative sources of financing; entry into definitive agreements with respect to and closing of a transaction in respect of the agreement in principle described above with KLDiscovery’s principal debenture holders and principal term loan lender; KLDiscovery’s potential failure to comply with privacy and information security regulations governing the client datasets it processes and stores; KLDiscovery’s ability to operate in highly competitive markets, and potential adverse effects of this competition; risk of decreased revenues if KLDiscovery does not adapt its pricing models; the ability to attract, motivate and retain qualified employees, including members of KLDiscovery’s senior management team; the ability to maintain a high level of client service and expand operations; potential issues with KLDiscovery’s product offerings that could cause legal exposure, reputational damage and an inability to deliver services; KLDiscovery’s ability to develop and successfully grow revenues from new products such as Nebula, improve existing products and adapt its business model to keep pace with industry trends; risk that KLDiscovery’s products and services fail to interoperate with third-party systems; potential unavailability of third-party technology that KLDiscovery uses in its products and services; potential disruption of KLDiscovery’s products, offerings, website and networks; difficulties resulting from KLDiscovery’s implementation of new consolidated business systems; the ability to deliver products and services following a disaster or business continuity event; disease or similar public health threat, such as COVID-19; potential unauthorized use of our products and technology by third parties and/or data security breaches and other incidents; potential intellectual property infringement claims; and the ability to comply with various trade restrictions, such as sanctions and export controls, resulting from KLDiscovery’s international operations.

These risks and other factors discussed in the “Risk Factors” section of KLDiscovery’s Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities Exchange Commission (“SEC”) and any other reports KLDiscovery files with the SEC, could cause actual results to differ materially from those expressed or implied by forward-looking statements made by KLDiscovery or on our behalf.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All statements speak only as of the date made, and unless legally required, KLDiscovery undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

We prepare financial statements in accordance with U.S. GAAP. We also disclose and discuss other non-U.S. GAAP financial measures such as EBITDA and adjusted EBITDA. Our management believes that these measures are relevant and provide useful supplemental information to investors by providing a baseline for evaluating and comparing our operating performance against that of other companies in our industry.

Our management believes EBITDA and Adjusted EBITDA reflect our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest, income taxes, equity compensation, acquisition and transaction costs, restructuring costs, systems establishment and costs associated with strategic initiatives which are incurred outside the ordinary course of our business, provides information about our cost structure and helps us to track our operating progress. We encourage investors and potential investors to carefully review our U.S. GAAP financial measures and compare them with our EBITDA and adjusted EBITDA. The non-U.S. GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies and in the future, we may disclose different non-U.S. GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry.

EBITDA and Adjusted EBITDA

We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), extinguishment of debt, impairment losses, and depreciation and amortization. We view adjusted EBITDA as an operating performance measure and as such, we believe that the most directly comparable U.S. GAAP financial measure is net loss. In calculating adjusted EBITDA, we exclude from net loss certain items that we believe are not reflective of our ongoing business as the exclusion of these items allows us to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions:

• Acquisition, financing and transaction costs generally represent earn-out payments, rating agency fees and letter of credit and revolving facility fees, as well as professional service fees and direct expenses related to acquisitions and public offerings and cost associated with reviewing potential alternative sources for cash or financing related to our debt maturities.
• Because we do not acquire businesses or effect financings on a regular or predictable cycle, we do not consider the amount of these costs to be a representative component of the day-to-day operating performance of our business.
• Stock compensation and other primarily represent portions of compensation paid to our employees and executives through stock-based instruments. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may not align with the actual value realized upon the future exercise or termination of the related stock-based awards. Additionally, stock compensation is a non-cash expense. Therefore, we believe it is useful to exclude stock-based compensation to better understand the long-term performance of our core business.
• Change in fair value of Private Warrants relates to changes in the fair market value of the Private Warrants issued in conjunction with the Business Combination. We do not consider the amount to be representative of a component of the day-to-day operating performance of our business.
• Restructuring costs generally represent non-ordinary course costs incurred in connection with a change in a contract or a change in the makeup of our personnel often related to an acquisition, such as severance payments, recruiting fees and retention charges. We do not consider the amount of restructuring costs to be a representative component of the day-to-day operating performance of our business.
• Systems establishment costs relate to non-ordinary course expenses incurred to develop our IT infrastructure, including system automation and enterprise resource planning system implementation. We do not consider the amount to be representative of a component of the day-to-day operating performance of our business.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240807045874/en/

Investor Contact:

Dawn Wilson

(703) 520-1498

dawn.wilson@kldiscovery.com

Media Contact:

Danny Zambito

(888) 811-3789

danny.zambito@kldiscovery.com

Source: KLDiscovery Inc.

FAQ

What were KLDiscovery's second quarter 2024 revenue results?

KLDiscovery's revenue for the second quarter of 2024 was $79 million, down from $90 million in the same period of 2023.

How did KLDiscovery's net loss change in Q2 2024?

KLDiscovery's net loss widened to $25.3 million in Q2 2024 from $4.7 million in Q2 2023.

What is the year-over-year growth for KLDiscovery's Nebula platform revenue?

The Nebula platform revenue grew by 51% year-over-year.

What steps has KLDiscovery taken to reduce its long-term debt?

KLDiscovery signed a transaction support agreement to significantly reduce its long-term debt.

What is KLDiscovery's Adjusted EBITDA for Q2 2024?

KLDiscovery's Adjusted EBITDA for Q2 2024 was $13.3 million, down from $20.1 million in Q2 2023.